There’s been a lot of chatter about startup investors turned off by “unicorns.” What they are now looking for are “cockroaches” i.e. businesses that build slowly, have real customers, keep their spending in check and are resilient enough to weather any storm.
Here are some examples of the funding chill:
First-time funding for all start-ups fell by 31% in 1Q2016. But the drop is even more dramatic for the once red-hot on-demand sector (businesses competing to bring you things or provide services ordered at the touch of a button). Global financing for on-demand startups plunged by almost 90% from a high of $7.3 billion in the third quarter of 2015 to just $1 billion in the first quarter of 2016, according to data from CB Insights.
Unicorns that rely on VCs to keep their companies afloat, like Twitter, Birchbox, Jawbone have all been making layoffs. We Work just announced it is cutting 7% of its workforce. Some have imploded entirely e.g. Zenefits.
Food-tech startups are shutting down – or making substantial changes:
Kitchit, the startup that brought chefs into your home is shutting down after 5 years and 100,000 meals, having run out of funds. Also shutting down: Spoonrocket, Dinner Lab, and Kitchensurfing.
Meanwhile, Instacart and Munchery have made substantial changes to their models to buoy their margins.
Bottom line, STUFF IS GETTING REAL. Anticipate many more shutdowns over the next year – and, of course, there will be collateral damage e.g. co-working spaces may take a big hit as startups and gig workers cut back on expenses (explaining the layoffs at We Work?).